Will the healthcare push pay off?

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The National Health Protection Scheme should act as a catalyst to increase health insurance penetration in the country, says Gopal Balachandran

The merger of the public insurers and their eventual listing is a positive development. Given the low penetration of non-life insurance at around 0.77 per cent of GDP, there is immense scope for industry players to continue expanding their reach, says Gopal Balachandran, Chief Financial Officer and Chief Risk Officer, ICICI Lombard. Excerpts from a chat with BusinessLine:

How will the Centre’s flagship National Health Protection Scheme to cover over 10 crore poor families benefit insurers? What will be the contours of the scheme?

The National Health Protection Scheme should act as a catalyst to increase health insurance penetration in the country. For a nation with a young and aspiring population, ensuring quality healthcare access is extremely important for us to harness our demographic dividend and the government has taken the right steps in this direction.

Given the scale and reach of the program, it will enable insurers to contribute to the government’s endeavour to provide health insurance cover for around 50 crore Indians. As for the scheme contours, we as an industry are awaiting the details from policymakers.

How will the merger of three public insurers impact the competitive landscape of the insurance industry?

The merger of the public insurers and their eventual listing is a positive development. Given the low penetration of non-life insurance at around 0.77 per cent of GDP, there is immense scope for industry players to continue expanding their reach and bring more consumers under the fold of non-life insurance covers.

Overall, your gross direct premium income (GDPI) has grown by 17 per cent year-on-year (y-o-y) in the nine months ended December 2017. What’s going to be the growth in each segment — health, motor etc. — and the growth drivers, going ahead, in each space?

Our growth in the nine months of the current fiscal has been in line with expectations. Within health, our focus remains on the more profitable retail health segment, which has grown by 17 per cent in the nine months ended December 2017. We had taken a conscious call to cap our exposure to the mass health segment, which remains a lumpy business.

We are, however, seeing some uptick in pricing in the corporate health space, particularly in the mid-corporate segment, and we are selectively looking at underwriting risk there. We continue to stay away from the large corporate segment, where business is lumpy and losses can be higher.

Within motor too, our focus remains on the more profitable two-wheeler and private car segments. We do cater to the commercial vehicles as we are obligated to underwrite some portion of the overall third-party quota. But here too, we have seen an average price increase of 28 per cent in the third-party premiums.

Still, under price tariff, we are looking to selectively underwrite in certain pockets and geographies, because at a particular loss ratio, third party business is earnings accretive. This is because we receive premiums on day one, and it stays with us as float earning income, until claims occur.

With regard to crop, we would like to be cautious. In the first half of this fiscal, crop formed 25 per cent of our GDPI, as of December its share is down to 20 per cent. In crop, we want to be sure of the risk we are underwriting.

Unlike retail health and motor, where the risk size is relatively smaller, in crop the exposures are much larger since you underwrite a cluster covering a large area. In crop, we get to know the outcome of the season in 6-9 months’ time, based on yields determined through crop-cutting experiments.

In property, we have seen an increase in market share. We do a lot of analytics around risk selection. We also do a lot of exposure-mapping when we underwrite corporate segments (non-health). Some regions have higher exposure to catastrophic events.

Coming to your key operating metrics loss ratio (ratio of claims incurred to net earned premium) and combined ratio (losses and expenses in relation to the total premiums), while your combined ratio has fallen from 104 per cent levels in FY17 to 100-odd per cent in the nine months ended December 2017, loss ratios in certain segments such as crop and motor third party have gone up.

Regarding our combined ratio, as we had stated last year at the time of our IPO, our long-term strategy is to bring it down to 100 per cent levels. We stand by those objectives. Within the combined ratio, we do not see much variation in our expense ratios. Where we hope to gain is through improvement in our loss ratios. The first half or nine-month results clearly indicate that we are committed to deliver on this count — our overall loss ratio has trended lower in the past three quarters.

Specifically, on crop, if you look at the loss ratio for the first half, it stood at 114 per cent, while for the nine months it has come down to 110 per cent. After reporting a much lower loss ratio of 84 per cent in FY17, we saw some sort of an adverse movement this fiscal in claims as far as Tamil Nadu is concerned. Hence, given the uncertainty, we would like to carry higher loss provisions on our books.

On third party motor, this segment continues to report unlimited claims and hence we would like to be conservative in our reserving practices. We would urge to look at our results more on a year-to-date basis.

Has the price increase in the third party motor tariff helped? Has it been commensurate with the losses in the segment?

The price increases are, in effect, a function of the loss experience in the industry. Hence, transparent reporting by all players will help in appropriate determination of the loss experience and price increases.

One important regulatory move has been the Motor Insurance Service Provider framework that has come into force from November 2017. This framework, among other tweaks, caps distribution fees payable by insurers. In effect, this should lower the cost of acquisition across the board. Hence the focus shifts to quality of service. We believe we have a competitive advantage, given our capabilities in claims settlement, distribution, use of technology, etc.

Coming back to the price increases, we have, on an average, seen a 12-15 per cent price increase that covers the claims inflation, which is also in the same range for us. The new Motor Vehicle Act, once it comes into force, specifies a time limit of six months for intimation of loss (currently unlimited). This is likely to bring down the float and impact investment income. From our standpoint, given our conservative provisioning (including claim inflation), on balance we could stand to benefit.

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